Trends of International Trade the Case of Ethiopia

1. Introduction

The Importance of International Trade

The importance of International trade to the process of economical development has been a contradicting issue between scholars. Classical economist, like Adam Smith, believes that a nation would gain from trade. He believes that trade would help for word resources to be utilized most efficiently would max world welfare. According to him, a nation would gain from trade if it specialized in the production of the good in which it has absolute advantage and import it for the good in which it has absolute disadvantage.

The advocators of traditional trade theory also believe that if each nation specializes in the production of the commodity of its comparative advantage. World output will be greater and through trade each nation would share in the gains. Comparative advantage theory which was discovered in 1817 by David Ricardo also supports the idea of trade. According to him even if one nations is less efficient than the other in the production of all commodities there in suit basis for mutually beneficiaries trade. As long as the price ratio difference between countries every country would find a good it can produce at low, relative costs than others. This theory suggest also that a developing nation should continue to specialize in the production of and export raw materials, fuels, minerals to developed nation in exchange for manufactured a products. Thus, it will max the welfare of the country in the short run. But this idea has a negative effect on a developing nation cause they believe that it will relegates them to a subordinate position vis-à-vis developed nations.

The reason for there suggestion in that cause developing countries lack a great size of industrial basis and technological bases with in their economies, they are unable to produce all the essential materials for their industrialization process in the long run. Thus, the poor nations are forced to trade with advanced nation for their...